Do your contracts contain any terms which are potentially unfair? Significant penalties will apply from November 2023

The Australian Consumer Law (ACL) contains provisions concerning unfair contract terms in both consumer agreements and small business agreements (which include independent contractor agreements). Currently, if a Court declares that a contract term is unfair, the term will be void and not enforceable. To date, having unfair contract terms in a contract has not been illegal and consequently Courts could not impose penalties as a deterrent.

However, this is set to change from November 2023 when there will be substantial penalties for breaching the unfair contract terms provisions. The maximum penalties will be:

  • For companies – the greater of up to $50 million, three times the value of the benefit derived from the breach, or, if the value cannot be determined, 30% of the company’s turnover during the period it engaged in the conduct; and
  • for individuals – $2.5 million.

When is a term unfair?

The unfair contract term provisions in the ACL apply to standard form contracts (contracts provided on a ‘take it or leave it’ basis with little or no negotiation). A term risks being unfair if it:

  1. would cause a significant imbalance in the parties’ rights and obligations, which arise under the contract;
  2. is not reasonably necessary to protect the legitimate interests of the party that would be advantaged by the term; and
  3. would cause detriment to a party if it were applied or relied upon.

What types of terms are unfair?

The Australian Competition and Consumer Commission (ACCC), the primary regulator responsible for enforcing the ACL, considers that the following types of terms (among others) risk being unfair:

  • terms permitting the auto-renewal of a contract;
  • a term allowing a party to unilaterally vary terms in an unconstrained manner or to unilaterally vary the characteristics of goods or services being provided;
  • terms imposing broad indemnities or excessive limitations or liabilities;
  • a term which limits a party’s rights to sue any other party; and
  • a term which limits one party’s vicarious liability for its agents.

How does this impact Direct Selling agreements?

In a direct selling context, the types of agreements which need to comply with these ACL requirements include:

  • customer sale agreements;
  • ‘Preferred Customer’ agreements;
  • autoship and subscription agreements;
  • independent contractor agreements with your salesforce, including any Policies and Procedures; and
  • the terms of use for website and digital tools, such as a mobile app.

If you have not considered recently whether any of your Australian agreements contain terms which risk being unfair, we recommend that you do so well before November 2023 so that any changes to the terms to reduce risk can be made and implemented in advance of the penalty provisions coming into effect. Clearly, you will need to give advance notice of the changes to ensure that the changes themselves are fair!

Please contact Cate Sendall if you have any questions related to Direct Selling agreements.

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